Climate Change Policies and Challenges in Indonesia

The introductory chapter provides a historical overview on the nexus of economic development, energy use, and energy-related CO₂ emissions over the past 40 years in Indonesia. A logarithmic mean Divisia index (LMDI) decomposition analysis was employed to examine determinants for the changes in energy-related CO₂ emissions. The 40-year period was divided into three major periods of political regimes with available data: 1971–1997 for the Suharto regime, 1999–2004 for the transition to a democratic regime, and 2005–2011 for the Yudhoyono regime. The analysis found that (1) coal started to play an important role in exports and power generation, which have positive effects on CO₂ emissions; (2) the price of oil commodities increased due to the fuel subsidy removal, and the rise of international oil prices accelerated improvements in energy efficiency; and (3) the transportation sector became increasingly important to increasing CO₂ emissions. The chapter concludes with future perspectives related to other chapters in the book.

This chapter will introduce climate change mitigation policies and institutions in Indonesia. In September 2009, the president of Indonesia stated that Indonesia would reduce emissions by 26 % unilaterally and up to 41 % with international support by 2020 compared to business as usual emission level. The Presidential Regulation No. 61/Year 2011 on the National Action Plan on GHG emission reduction (RAN-GRK) was issued to achieve this voluntary commitment. In addition, the Presidential Regulation No. 71/Year 2011 on national GHG inventory was issued with the objective of providing regular information on status and trend of GHG emissions and removals. The institutional arrangement related to climate change mitigation, including several funding mechanisms such as the Joint Crediting Mechanism (JCM), has also been developed in Indonesia. These initiatives are linked with international reporting requirements. To comply with the more regular and frequent reporting requirement, Indonesia will need to make a transition from a temporary project-based approach to a more permanent and institution-based approach.

This chapter explains the importance of accurate estimation of greenhouse gas (GHG) emissions for effective promotion of mitigation policies at the national and regional levels. Between 2011 and 2014, the Ministry of Environment of Indonesia and Japan International Cooperation Agency (JICA) conducted a pilot project in the provinces of North Sumatra and South Sumatra to enhance the quality of their GHG inventory in the waste sector. Through the pilot project, methodologies for developing accurate activity data were developed, resulting in a decrease of GHG emissions from solid waste disposal sites (SWDSs) by approximately 30 %. Methane emissions from SWDSs in other provinces are also expected to decrease by approximately 30 % because their GHG estimation methods are similar to what had been the case in North Sumatra and South Sumatra before the pilot project started. This indicates the necessity of updating the national action plan for GHG emission reduction (RAN-GRK) along with the improvement of the GHG inventory.

The present study aims to evaluate national adaptation planning, using the National Action Plan for Climate Change Adaptation (RAN-API) in Indonesia as a case. In doing so, the current study applies the methodology used in Preston et al. (2011), where a set of 57 adaptation plans from three developed countries was evaluated against 19 planning processes. The same criteria and scoring system were applied to the current study to evaluate RAN-API, both as identified in its document and as viewed by the stakeholders. A desktop review and questionnaires were undertaken to this end. It was found that discrepancies exist between the status of RAN-API as documented and the stakeholders’ views of some criteria, suggesting that information or knowledge gaps may still exist despite the efforts made for stakeholder engagement. In some of the other criteria, the stakeholders’ views match the status as identified in the document. Most notably, they both agree that the weakness of RAN-API is related to limited consideration for non-climatic factors. While the development of RAN-API is a critical step taken in the country, the current study finds that there remains room for further improvement. The criteria or indicators to be used to assess the progress of RAN-API as a whole may need to be further elaborated.

Deforestation is the most critical issue of climate change in Indonesia, as well as in other tropical countries. Reducing deforestation when major forests are managed under concession or permit system is increasingly challenging. The main focus of this chapter is to quantitatively investigate the association between forest permits and deforestation at national level in Indonesia. Hence, this chapter discusses the state of forest management and the forest permit system in Indonesia. Theoretical and empirical literature on the relationship have been extensively reviewed and summarized in the context of Indonesia. Furthermore, the empirical analysis with provincial data for the relation between two major forest permits, the logging permit and the plantation conversion permit, and forest cover loss are implemented. The results are different from the expectation posing a question on the effectiveness of the current forest moratorium policy as well as the forest tariff policy to the attempts in mitigating deforestation. Based on the empirical findings, some possible alternative forest policies in short- and long-term perspectives are discussed.

This chapter investigates key issues related to the implementation of REDD+ in Central Kalimantan Province of Indonesia, where peatland fires contribute significantly to the release of large amounts of carbon. We focus on the investigation of factors that promote peatland fire prevention and on the estimation of the Kalimantan Forest Carbon Partnership (KFCP), one of the earliest REDD+ plot projects. In our analysis, no effect of the KFCP is found, whereas economic factors, such as the value of labor allocation for rubber production and additional off-farm income, and noneconomic factors, such as traditional mutual assistance called Gotong-royong, can promote fire prevention. This finding is attributed to the fact that the KFCP failed to develop an appropriate incentive scheme. These results suggest that a better design for intervention would incorporate a combination of economic and noneconomic incentives to achieve an effective REDD+ policy.

Due to its accelerating economy and growing population, Indonesia consumed more and more energy. It has become an oil-importing country since 2003. Furthermore, Indonesia’s energy policy has changed drastically since the Asian crisis by giving more funds to fuel subsidy than development fund. These facts made scholars and international institutions urge the government of Indonesia to remove the subsidy. One of the benefits of removal of subsidy is lessening CO₂ emission due to lower fuel consumption. There are several studies conducted to estimate the impact of subsidy removal using descriptive analysis, computable general equilibrium and partial equilibrium analysis. This paper tries to estimate the CO₂ emission reduction using partial equilibrium analysis based on several price adjustment scenarios. The policy implication of this paper would be that the government should keep the ongoing removal of fuel subsidy because this action would be more environmental friendly by saving around 70 million tonnes CO₂ which is double compared to IEA estimation using 1998 data (IEA 2000).

In 2014, Indonesia is reported as the world’s tenth largest economy in the world. With stable economic growth rate above 5 % per annum in the last 10 years, national energy demand is projected to increase from 712 million barrel of oil equivalent (BOE) in 2010 to 1.3 billion BOE in 2019. Indonesia is highly dependent on fossil fuel. The country has become a net importer of oil with 800,000 barrel oil per day imported that year. In order to reduce the burden of national budget for oil import, the government has established the national energy policy that shifts the main energy source from oil to other sources. It has also set up regulation for developing approximately 20,000 MW of coal-fired power plants (Fast Track Program Phases 1 and 2) at the expense of higher greenhouse gas (GHG) emissions. In order to provide an insight for government in developing a strategy for mitigating GHG emission, alternative scenarios of electricity planning are analyzed using the Indonesia Integrated Energy, Economic, and Environmental Modeling (I2E3M) software. The alternative scenarios include higher utilization of renewable energy and demand-side management program. The results confirm that limiting the GHG emission will increase the share of renewable energy in the primary energy mix for electricity generation. By setting GHG emission at 10 % lower than business as usual (BAU) case, the share of renewable energy will be increased to around 15 % in 2020. Moreover, the demand-side management program is another option in reducing GHG emission from electricity generation activities.

The manufacturing sector is one of the most important sectors in Indonesia due to its enormous potential for creating job opportunities and its contribution to development. When the roles of manufacturing sector are expected to increase continuously, some considerable obstructions should be confronted, in particular the increasing pollution and the increasing domestic price of oil commodities. This chapter provides a baseline analysis of the total factor productivity (TFP) growth over time with and without considering CO₂ emissions and the estimation of carbon abatement cost of manufacturing sector from 1990 to 2000. The results show that the TFP with CO₂ emissions over time has grown faster than the TFP without CO₂ emissions for the most of all periods. The results suggested that when accounting for changes in pollutions as undesirable outputs, the average productivity growth is higher than the growth ignoring pollutions. The increased price of oil commodities might affect the environmental productivity and average carbon abatement cost of the manufacturing sector. Several sectors are identified to be ready for the implementation of a carbon tax in the future. The results also suggest that CO₂ emissions as undesirable outputs can be considered in measuring the manufacturing sector’s productivity growth as a response to the climate change mitigation and energy-related policy. At the same time, technological improvement is expected to be a major concern for the manufacturing firms’ long-term strategic planning after the changes in prices of oil commodities. Hence, the share of manufacturing sector to Indonesia’s gross domestic product (GDP) and more job opportunities can be well maintained in the future.

Rapid development of voluntary and mandatory ecolabeling has occurred since the government enacted national standardization in 2000, including mandatory energy-saving labeling schemes (public labels) for compact fluorescent lamps (CFL) and air conditioning (AC). Some top AC producers attached their own energy-saving label (private label) to attract green consumers. Energy efficiency programs challenge certain barriers to its implementation, e.g., phasing out energy subsidies and encouraging consumers to utilize energy efficiently. To understand how consumers react to the energy efficiency labeling applied to AC products, this chapter reviews some policies carried out and some barriers faced by the government on the ecolabels and energy conservation through energy efficiency labeling scheme and presents a case study of consumers and preferences toward AC products conducted in Greater Jakarta. The study revealed that the main decision-makers regarding electronic household appliances are mainly adult males with advanced education and high income who live in a house without split AC installed but have the intention to purchase it. Brand of origin, guarantee, and public and private labels have positive impacts on consumer preferences in buying AC products. Implementation of a public label can improve the marginal utility of potential consumers living in either high-penetration AC markets or low-penetration AC markets who have a high intent to buy. Both public and private labels have good synergy, which improves consumer preferences in buying split AC when the labels are implemented together with an energy subsidy removal policy. On average, willingness to pay for AC products with public and private labels is approximately 378 USD and 163 USD, respectively. Both labels in the market can generate a potential total social economic value of approximately 635 million USD and 274 million USD, respectively. Subsidy removal will increase the values by 36 % and 81 %, respectively.

Since the transportation sector is one of the main contributors of GHG emissions in Indonesia, having a clear direction of climate policy is very important. Developing mass rapid transit (MRT) as the climate policy in urban transportation is urgently needed since it can encourage people to use public transport. However, some policies seem conflicting, either encouraging or discouraging people to use public transport. Therefore, balancing conflicting policies is important. Fuel subsidy is such policy that hampers potential impacts of the MRT being currently under construction in one of the most congested cities in the world, Jakarta. Describing the current transport policies in Jakarta as well as the current commuters’ behavior on transport mode choices is a basis to deliver the appropriate policies. Repeated choice experiments for private vehicle commuters in Jakarta on preferences if they would be willing to shift to MRT once it becomes available have been conducted before and after the removal of the fuel subsidy. The mixed logit models revealed that the scale of impacts on probability to shift for MRT due to subsidy removal is significant compared to the best available feasible options for MRT service improvements. Moreover, after the actual implementation of the fuel subsidy removal, more motorcycle commuters are willing to shift compared to the hypothetical scenario of the fuel subsidy removal. Shifting from using cars or motorcycles to MRT also can reduce the CO₂ emission. Under the assumptions that MRT will be operated by electric-based systems and the CO₂ emission is negligible, the shifting of commuters from cars and motorcycles can reduce the CO₂ emission by 10.52 % per year, using the year 2013 as the base year. Moreover, because of the fuel subsidy removal, the reduction of CO₂ emission will be higher, up to 13.28 % per year.

Waste-to-energy (WTE) can be a potential solution for Indonesia allowing for improved waste management, reduced emissions, and less waste in landfills. An economic analysis comparing WTE and landfilling using Bekasi City, Indonesia, as a case study is examined. Waste amounts are projected for 2015–2035 with baseline costs and emissions estimated. Next, parameters for the WTE scenario are presented followed by economic analysis with IRRs calculated. Sensitivity analyses are also conducted to assess changes on the returns, given different relative price changes in future. The WTE scenario considers three incineration plant sizes and two major revenue sources – per ton of cleaning benefit and electricity sales – not currently implemented under two different scopes: independent introduction of WTE and its reference to current landfilling strategy. The results show that there are possible conditions that make WTE financially feasible especially larger scale of projects with large collection volumes. The IRRs would then be largely improved by further aggressive feed-in tariff policy. Waste management should not be viewed solely as private sector service but a public good with social costs and benefits taken into account, since environmental benefits also improve the IRRs. National-level initiatives such as the National Waste Policy and the feed-in tariff provide a push and pull strategy for innovation in WTE, but additional policies for enhancing environmental awareness of the citizens can help hasten WTE adoption.

Rice plays a significant role in Indonesia. It is a staple food of the country and has strategic importance for food security. Rice productivity is highly influenced by climate and its variability. As planting time is one of the most affecting factors, providing correct information for farmers at the right time is critical for successful rice farming. The Indonesian Ministry of Agriculture has developed a tool called “Integrated Cropping Calendar System (KATAM)” to support in increasing food production and helping farmers to adapt to the changing climate. KATAM provides useful information, such as the prediction on appropriate planting time, and recommendation on types of rice variety and fertilizer to be used. It also contains information on potential climate-related hazards, such as floods and droughts, which will help farmers to minimize climate risks. However, farmers are often unaware of this tool. This chapter addresses the opportunities and challenges associated with communication of KATAM with rice farmers in Indonesia. In this relation, it also describes an intermediary role of agricultural extension workers and the government initiative “Climate Field School.”

Climate change has negative impacts on production of food crops, especially rice, the staple food for the majority of Indonesians. The Government of Indonesia has to manage the agricultural development to adapt to climate anomalies and protect farmers’ welfare. Agricultural insurance is introduced to share risks caused by perils and natural disasters. The pilot rice crop insurance has been successfully implemented in several rice-producing areas with positive responses from farmers. The sum insured by the indemnity-based insurance is six million Indonesian rupiah per hectare for one planting season, and the premium rate is set at 3 %. While 80 % of the premium is paid under the government subsidy scheme, the remaining 20 % is born by farmers themselves. Farmers who participate in this scheme are required to follow guideline on agricultural practices, while they are protected from crop damage caused by the named perils (flood, drought, pests, and disease). The partnership among the government as a regulator, insurance company as an insurer, and farmers as the insured needs to be further promoted to enhance the implementation of rice crop insurance.